An insurance company lawyer has told a federal jury that the former partners of convicted Annapolis attorney Edward S. Digges Jr. should pay $3.6 million in negligence judgments against them because they failed to fulfill their policy obligations to the insurer.

The jury was to begin deliberations today in U.S. District Court in Baltimore after 3 1/2 weeks of testimony.

In the case, St. Paul Fire and Marine Insurance Co. is trying to avoid paying judgments imposed in 1989 on James T. Wharton and David A. Levin, Digges' former law partners, as the result of a massive billing fraud Digges perpetrated against Dresser Industries Inc.

Dresser, the defendant in the case, claims St. Paul is trying to shirk its financial responsibility under the law firm's professional liability policy.

Richard McMillan, St. Paul's lead counsel, told the jury in closing arguments yesterday that the policy should be voided because Wharton and Levin didn't report Digges' massive billing fraud -- and the possibility of a lawsuit by Dresser -- to the

insurance company when they learned of Digges' misconduct in May 1988.

"What do you do with money that's been stolen? You give it back," McMillan told the jury.

"When they learned that the money was to come out of their own pockets, they launched an investigation, threw Digges out of the law firm and reported him to the Maryland Bar Association."

But he said Wharton and Levin dragged their feet until then, "and they kept the money" from Dresser that they had shared as Digges' partners.

The trial focused on what Wharton and Levin knew about Digges' fraud when they applied for the liability policy, whether they lied to obtain the coverage and whether they later adhered to policy clauses that required them to report their knowledge of Digges' fraud to St. Paul.

But critical rulings made by Judge Joseph C. Howard on legal issues over the past two days seemed to make a verdict in favor of St. Paul almost a foregone conclusion, over the strenuous objections of Dresser's lawyers.

Howard ruled -- and instructed the jury late yesterday -- that Digges intentionally hid his misconduct from St. Paul when the policy was issued, and that policy language bars coverage for any lawyers in the firm if any of them did so.

Benjamin A. Civiletti, a former U.S. attorney general who is Dresser's lead counsel, said in closing arguments that St. Paul waived its right to deny coverage to Wharton and Levin when it cut Digges from the policy in the summer of 1989 but did not act against the other two partners until several months later.

Civiletti also claimed the insurance policy contained an "innocent partner" clause which should protect Wharton and Levin.

He accused the insurer of spending months investigating the two in an attempt to find reasons to void their coverage after the judgments were issued.

St. Paul, Civiletti said, "gets paid to cover a protected person, and

they [Wharton and Levin] paid premiums for that. . . . When a fire happens, the insurance company ought to pay people a fair amount for the damages."

Jacob Stein, who represents Wharton and Levin as interested parties in the case, accused St. Paul of hypocrisy for issuing the policy, then trying to get out of paying the judgments.

But McMillan said in rebuttal that St. Paul defended Wharton and Levin against the judgments imposed in the Dresser suit, and did not cut off their liability coverage for it until after the insurer obtained evidence that they allegedly knew of Digges' billing fraud when they obtained the policy.